Sabanci Holding | Buy: Focus on energy continues

Energy takes the lead in NAV contribution. We have revisited our fair value for the
unlisted generation unit (EnerjiSA Generation – EG) in the light of its solid ongoing
profitability, declining leverage, and new capacity additions on the renewables side. Our
revised SOTP calculations and NAV model suggest that the highest value contributor is
now the energy segment (c36% of current NAV), followed by banking (c28%). We expect
continuation of the energy segment’s heavy weight in the NAV in the coming years. EG
has a renewable capacity of c1.7TW currently, the nation’s largest, which represents
c46% of its total installed capacity. But it has 1TW wind capacity under development, as a
result of which its total generation portfolio will rise to 57% by 2026, driven by renewables.

Playing in multi-dimensions in energy. New investments and operations in Turkey also
comprise expansion of the EV charging network under Esarj (a unit of EnerjiSA; ENJSA
TI, CP TRY32.98, Hold) as well as large-scale solar energy solution applications. Outside
Turkey, Sabanci directly injected cTRY3bn (cUSD160m) into STC – Sabanci Climate
Technologies – a newly established platform in the US to manage Sabanci’s investments
into renewable energy and new energy technologies. As an initial step, investments have
been made in several start-ups as well as signing of an EPC project for a solar power
investment of 272MW in the US. Sabanci expects to complete this project by mid-2024.

Share of non-bank profits should rise in 2023. Although we estimate that Sabanci’s
non-bank profits more than doubled in 2022, an even stronger surge in bank profits
led to a noteworthy change in the consolidated profit mix last year; c70% bank / 30%
non-bank, based on our forecasts, from 54/46 in 2021. We expect the mix to improve
on the non-bank side in 2023e to 55/45 (bank/non-bank), as banking sector profits
face a high 2022 comparison, while we project non-bank profits of 30% in a year
continued high inflation in Turkey.

Raise target price to TRY55.00 (from TRY30.90); retain Buy. We increase our target
price primarily based on increases in the valuations for the listed subsidiaries. Valuing its
non-bank portfolio at c6x 2023e earnings (vs 5x 2022e previously) results in no change in
our fair value NAV discount of 20%. Our TP implies a current NAV discount of 20% and
upside of 41%. We retain our Buy rating. Sabanci trades at 2023e PE of 2.6x, P/B of 0.5x
and current NAV discount of 38%.


HSBC Global Research